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This book uses resource economics costing approaches incorporating externalities to estimate the returns for the country’s irrigation and demonstrates how underestimating the cost of water leads farmers to overestimate profits. The importance of the subject can be judged in light of the fact that India is the largest user of groundwater both for irrigation and for drinking purposes, pumping twice as much as the United States and six times as much as Europe.

Despite water’s vital role in ensuring economic security for the nation and farmers alike by supporting more than 70% of food production, water resource economists are yet to impress upon farmers and policymakers the true value of water and the urgent need for its sustainable extraction, recharge and use. In an endeavor to promote more awareness, the book further delineates the roles of the demand side and supply side in the economics of irrigation, and explains how the cost of water varies with the efforts to recharge it, crop patterns, degrees of initial and premature well failure and degrees of externalities. It also discusses the importance of micro-irrigation in the economics of saving water for irrigation, estimating the marginal productivity of water and how it improves with drip irrigation, the economics of water sharing and water markets, optimal control theory in sustainable extraction of water, payment of ecosystem services for water and how India can effectively recover.

In closing, the book highlights the role of socioeconomic and hydrogeological factors in the economics of irrigation, which vary considerably across hard rock areas and the resulting limitations on generalizing.

Inhaltsverzeichnis

Frontmatter

1. Water for Irrigation: An Overview

Abstract
Irrigation, largely in rice and wheat complemented by research and extension efforts heralded India’s green revolution, making India the world’s top most extractor of groundwater. India’s green revolution can also be termed as ‘groundwater exploitation revolution’, since green revolution largely took place in water loving crops - paddy and wheat. The role of groundwater and its continuing importance in shaping Indian agriculture by contributing more than 60 % of growth in agricultural productivity highlights the relative efficiency in groundwater extraction at the cost of equity and sustainability. Climate change can thwart groundwater use unless farmers and policy-makers appreciate its fragile nature in hard rock areas (HRA) of India and work towards its sustainable path of extraction and use. The reciprocal externalities due to cumulative interference among irrigation wells and the cone of depression are internalized by farmers, while the policy-makers point towards the degree of electricity subsidy, which is only the ‘tip of the iceberg’ of the groundwater cost borne by the farmers. As farmers begin incurring the pumping cost, user cost, environmental cost, ecological cost and costs of unsustainability, groundwater extraction goes on reducing due to marginal cost pricing in theory. The role of organizations and institutions towards wise use of groundwater is crucial for sustainability in resource extraction.
M.G. Chandrakanth

2. Externality in Irrigation

Abstract
Externality in groundwater irrigation is the inadvertent side effect of a farmer on the neighbouring farmer due to cumulative interference leading to overextraction (inefficiency) and social cost (welfare loss) for which no price mechanism (compensation) or institution (contract) exists, resulting in initial/premature failure of irrigation well/s, lowered yield of groundwater, reduced crop area irrigated, shift to low water crops and rainfed farming. Farmer, in his/her efforts to remain on the original production possibility curve, invests to maximize access to groundwater, due to the tendency of over estimation by the water diviner-driller (Winner’s curse). Farmers investing substantially, tend to lose, after the realization that wells are low yielders. On the other hand, efforts to recharge groundwater, contributing to positive externality are not undertaken on significant scale since social benefits of recharge are not appreciated by the society. Thus, both positive and negative externality, result in inefficiency and welfare loss.
M.G. Chandrakanth

3. Unidirectional and Reciprocal Externality in Irrigation

Abstract
In unidirectional externalities similar to point pollution, it is easier to identify the source of pollution and accordingly the polluter, while in the case of reciprocal externalities, the case of nonpoint pollution, it is not possible to identify the source of pollution and the polluter. The concept is similar in groundwater irrigation, where it is difficult to explore the cause of well failure emanating from any specific well. While chemical tracers and radio isotopes are being used to locate the well causing cumulative interference, they are not used on a large scale and remain text book solutions. In this chapter, an attempt is made to measure reciprocal externality in groundwater irrigation. Obviously the data from the first farmer whose well is interfered are crucial, and from him/her, another farmer’s data whose well is interfered are obtained, and the process goes on following snowball rolling gathering information. The research pertaining to reciprocal externality is time consuming and expensive, since data on farmers who have suffered from reciprocal externality are not directly available.
M.G. Chandrakanth

4. Sand Mining Externality

Abstract
Sand mining is an example of reciprocal externality impinging on groundwater extraction. The demand for sand is rising in recent years due to its indispensability of use in civil construction, due to a spurt in urbanization and increased demand for housing. In order to meet the existing demand, sand is mined illegally. The demand for sand has driven lorry owners and contractors to search for quality sand deposits in different river streams. De jure, according to the Department of Mines and Geology of the Government of Karnataka, sand in river/water streams is allowed to be extracted to a maximum depth of 3 ft from the surface to allow for groundwater recharge. If sand extraction exceeds the limit of extracting sand beyond the depth of 3 ft, it is termed ‘sand mining’ and will affect groundwater recharge. Such an overextraction of sand is inhibiting the riverbed’s ability to withhold and transmit groundwater to open wells and borewells on either side of the stream. Ceteris paribus, demand for sand is a function of the price of sand, its quality suitable for construction work, access to approach road, availability of labour, mechanized equipments and governance in executing the rule of sand extraction. Along the riparian areas, sand serves as the medium to recharge the groundwater. Sand over time is accumulated in layers along the river path, along the natural flow of surface water and this is keeping the riparian areas recharged with groundwater and the associated river ecosystems. Here, the externality due to sand mining on groundwater irrigation is estimated.
M.G. Chandrakanth

5. Relationship Between Rainfall and Recharge

Abstract
Groundwater has a demand and a supply side. The demand side of groundwater refers to groundwater development through extraction and use. Hence, the demand side includes technologies, markets and institutions concerning extraction and use of groundwater, such as drilling wells, deciding on the right irrigation pump set with the right horsepower, construction of storage structures to store water, use of sprinkler, drip, ring and basin, furrow and flood irrigation systems for different crops. The demand side of groundwater has many takers since takers are myopic and are always hopeful of getting groundwater, whenever they dig or drill a well, unmindful of depth. In the process, they are most likely to experience initial and premature failures since there are no established protocols on well depths, water extraction, cropping pattern and irrigation economics. On the other hand, the supply side of groundwater has very few takers since groundwater pumpers do not believe that groundwater can be recharged even for wells with greater depths. They always believe and hope that only natural rainfall will recharge groundwater. However, in hard rock areas, the natural recharge is just around 10 % and is insufficient given the volume of groundwater pumped from the aquifer. In this chapter, a modest attempt is made to create awareness regarding how much water enters the aquifer from the rainfall. The purpose is to impress upon the need for artificial recharge of groundwater in the hard rock areas since the natural recharge is a miniscule of the rainfall and since farmers pump at least 10 times more than the natural recharge.
M.G. Chandrakanth

6. Marginal Productivity of Water

Abstract
Marginal product refers to the contribution of a specific dose of input to the output, keeping all other inputs at their average level of use in production. The concept of ‘marginal product’ is useful in quantifying the economic contribution of each of the inputs in the production process in the first level and in the second and offers the farmer the economically right dose of input use in order to obtain the economically optimum output in the production process. Marginal product of water is accordingly an extremely useful concept, especially in the context of economic scarcity of water resource.
M.G. Chandrakanth

7. Costing Water for Irrigation

Abstract
In India, more than 80 % of the irrigation requirement is met by groundwater resource. However, there has been no attempt to cost the scarce water resource for irrigation. The properties amenable for costing/valuation of natural resources are unique and constrain the economic opportunities to value/cost them since natural resources lack property rights and are subject to externalities. In this chapter, the rationale and methodology of costing groundwater and surface water for irrigation are provided. Unfortunately the Commission for Agricultural Costs and Prices (CACP) does not recognize the cost of groundwater or surface water in cost of cultivation of crops. The CACP / Directorate of Economics and Statistics, publishes an average cost of cultivation which includes both rainfed and irrigated situations, discounting the cost of irrigation water. This is also because there is no volumetric measurement of water applied to crops. This leads to underestimation of cost of cultivation of irrigated crops and obviously the MSP fixed will not consider the true cost of cultivation of irrigated crops.
M.G. Chandrakanth

8. Locating Interference and Valuing Water

Abstract
Even though the earth has 1400 million km3 of water, only 2.7 % of this is fresh water, of which 75 % is frozen in the polar regions, 2 % is surface water in rivers and 23 % is groundwater. Thus, groundwater is the largest source of fresh water available. Thus, the future potential lies in tapping the groundwater potential and using it in a sustainable manner. In India, the area irrigated by groundwater (39 million ha, 51 %) is almost on par with that irrigated by surface water (37 million ha, 49 %). Investment in groundwater (well) irrigation is by private sources (farmers), while that in surface irrigation is by public resources. However, there are no precise estimates of water prices of both surface water and groundwater. Due to public investment in surface water, users may not appreciate the value of water, unlike in the case of private investments in groundwater irrigation. In this chapter, the value of groundwater used for irrigation, cost of electricity required to lift the groundwater and net returns to groundwater irrigation in hard-rock areas (HRAs) are highlighted for an indication regarding the value of groundwater used for irrigation.
M.G. Chandrakanth

9. Demand Side Economics of Micro-irrigation

Abstract
Farmers invest relatively on the demand side of groundwater, compassing investment on borewells, irrigation pump sets and drip/sprinkler irrigation system/s. In this chapter, the economic benefits from micro-irrigation in the eastern dry zone of Karnataka are discussed with field data from drip irrigation farmers (DIF) and conventional irrigation farmers (CIF) drawing groundwater from irrigation wells. With the average size of holdings in DIF (CIF) being 3.48 ac (2.77 ac), major crops were mulberry and grape (mulberry and tomato). Investment per functioning well in DIF (CIF) was ₹ 166,223 (₹ 131,551) as DIF had a higher rate of well failure. The well failure rate for DIF (CIF) was 33 % (19 %). The annual negative externality cost was higher for DIF (₹ 8404) compared to CIF (₹ 4590). Groundwater extracted per farm in DIF (CIF) was 60 ac-in. (94 ac-in.). The net returns per acre-inch of groundwater, net returns per rupee of water cost on DIF (CIF) were ₹ 457, 2.80 (₹ 194, 1.20), respectively.
Using the intercept and slope dummy in the net returns function, it was found that by adapting drip irrigation the net returns per farm increased from ₹ 15,292 to 25,203 and the marginal productivity of water increased from ₹ 465 to 1960. One acre inch is the same as one hectare centimeter, holding around 22611 gallons or 102654 liters of water. Using the discriminant function to find the explanatory variables that differentiate the DIF and CIF, it was found that variables such as cropping intensity, water used (acre-inches) and net returns per acre-inch of water were the discriminant variables. Hence, the government policy needs to be oriented towards these variables to motivate farmers to adopt drip irrigation. In addition, it is essential to promote irrigation literacy to enable farmers to use water efficiently.
M.G. Chandrakanth

10. Supply-Side Economic Contribution of Watershed Programme to Groundwater Recharge

Abstract
The demand side of groundwater refers to groundwater development implying extraction and use of groundwater. Given that agriculture/irrigation uses more than 90 % of groundwater by volume, agriculture is the largest user of groundwater. However, the supply side of groundwater refers to making groundwater available by artificial recharge at both macro and micro levels. The macro-level recharge programmes are watershed development programmes largely implemented by the National Watershed Development Project for Rainfed Areas (NWDPRA). Similarly, the World Bank too assisted state governments in augmenting recharge through supply-side economics through programmes such as Sujala. The benefit of the macro-level recharge effort is that it caters to a wide area, serving equity and sustainability.
In this chapter, the economic impact of Sujala watershed is assessed with regard to groundwater recharge, efficiency and equity in the distribution of benefits in India. The economic performance is evaluated using the field data from farmers in Karnataka for drought and normal years in Sujala watershed—these data form the data base for the study. For comparison, farmers from the non-Sujala (or Drought-Prone Area Programme—DPAP) watershed and from outside the watershed area are studied and analysed. The results indicate the economic contribution of the watershed programme to groundwater recharge, which also serve as an evaluation of the performance of the programme.
The amortized cost per functioning well and cost per acre-inch of groundwater in the Sujala watershed (₹ 9470, 125) is lower than in the non-Sujala watershed (₹ 10,027, 117) and in the non-watershed area (₹ 11, 140, 138). The economic contribution in terms of incremental net returns per acre indicates the economic supremacy of the Sujala watershed programme: (i) Sujala over the non-watershed area (in drought year, normal year) equal to the contribution of the Sujala watershed: ₹ 1726, 3650; (ii) Sujala over the non-Sujala (DPAP) watershed equal to the contribution of the Sujala watershed institutions: ₹ 1067, 898; (iii) non-Sujala (DPAP) over the non-watershed area equal to the contribution of the non-Sujala (DPAP) watershed: ₹ 133, 2226.
The incremental net returns of Sujala over a non-watershed area (in drought year, normal year) for farmers possessing irrigation wells (₹ 614,5056); for farmers not possessing irrigation wells (₹ 7354, 5326); for all classes of farmers (3066, 4967) are the prima facie indicators of the economic contributions of the Sujala watershed programme. The negative externality per well per year in Sujala is ₹ 2652; in the non-Sujala watershed it is ₹ 2735, and in the non-watershed area it is ₹ 4285. This shows that the negative externality in groundwater irrigation has reduced by 38 % in Sujala over the non-watershed area.
M.G. Chandrakanth

11. Water Markets for Sharing Limited Water

Abstract
Due to increasing rate of irrigation well failure and increasing investment requirement in sinking and operating irrigation wells, the ownership and operation of such irrigation wells is with those who can afford the risky and bulky investments. Thus, ownership of modern irrigation wells is skewed towards large farmers. In Indo-Gangetic plains, skewness in owning irrigation wells is lower than that in hard rock areas (HRAs) of southern peninsula where water table is low, requiring higher initial investment (Shah, Indian J Agric Econo, 46(3):335–348, 1991). Another reason for skewed ownership of irrigation wells is the skewness in distribution of holdings and fragmentation. A farmer must have captive irrigable command area of a certain minimum size to earn a decent return on investment. In addition, the norm of the isolation distance especially while applying for institutional loan for drilling of irrigation well/s has to be followed. However a cursory look at the data indicates that in India 66% of wells are with marginal and small farmers and in Karnataka around 50% of them are with them. Nevertheless, water markets which result in water sharing do bring their equity contribution since those marginal and small farmers who can neither face the risk of well failure nor can invest in well irrigation will greatly be benefited from water sharing endeavors. The norm of isolation distance does not distinguish between early and latecomers to irrigation and the brunt of well failure falls on the late coming small and marginal farmers to groundwater irrigation. Even with such norms, the well failure rate is increasing unabated. In this chapter, contribution of water market to equity and efficiency is highlighted and discussed. Considering increasing rate of well failure, small and marginal farmers find it prohibitive to drill new well/s and hence water market serves the equity purpose, serving the cause of poor farmers who cannot afford to drill new well. In addition, farmers selling groundwater for irrigation as well as the ones who buy water, will be more efficient than the farmers who are not involved in marketing/selling/buying, as farmers realize the marginal return from water sold/water bought and will use their water more efficiently than farmers who are using the water for cultivating crops.
M.G. Chandrakanth

12. Sustainable Path of Extraction of Groundwater in Tank and Canal Command Areas

Abstract
The objective of optimal control is to arrive at a temporally optimal allocation of groundwater over time horizon that will maximize the net present value of benefits from extracting the resource over the entire period. A typical problem is that of choosing optimal levels of decision variables over time. The volume of groundwater extracted is the control variable. The state of the system given by the stock of groundwater at any point of time is called the state variable. Changes over time in the state variable(s) are represented by the equations of motion, which are assumed to be the functions of the state variable, control variable and random variable(s) at the moment of change. In this chapter, the optimal path of groundwater extraction is demonstrated considering groundwater use for irrigation under tank command and canal command; for comparison, groundwater extraction with no such recharge facility is considered. While the optimal control technique offers solutions regarding sustainable path of extraction of groundwater thereby enhancing the age and life of irrigation wells, unless the society of farmers adopt the optimal path, no individual farmer will be benefited. Hence the dire need for creating awareness for farmers regarding sustainable path of extraction of groundwater for irrigation.
M.G. Chandrakanth

13. Water Policy

Abstract
In India, policy with regard to food, fertilizers and credit have been receiving the highest priority at both the state and union government level. Among the natural resources, the highest attention has been accorded to forest policy through the enactment of the Forest Conservation Act of 1980 and the National Forest Policy of 1988. The national water policy outlined by the Ministry of Water Resources, Government of India highlights the policy in 2012 and in 2002. Water policy of 2012 has been built on a comprehensive and action-oriented plan highlighted in the 2002 policy. Both the policy documents adequately highlight the problem of scarcity of surface water and groundwater, overexploitation, inefficient use, need for introducing improved technologies of water use, including incentivizing efficient water use, encouraging community-based management of aquifers and artificial recharging projects. The policy also emphasizes on integrated water resources management (IWRM) considering the needs of both surface water and groundwater and all uses and users in order to enhance land and water productivity. The policy has also emphasized on declining groundwater levels in overexploited areas, focusing on the role of technology and incentives. While policies emphasize highlighting the problems of overexploitation, steps are yet to be undertaken to address the overexploitation. Even though states such as Karnataka, Andhra Pradesh, Gujarath have enacted and implemented the Groundwater regulation and control Acts Dejure, their field level implementation Defacto is poor. For instance the extent to which mineral mining is taken seriously, groundwater mining and sand mining have not been taken seriously (in Karnataka). This chapter discusses on water policy and limitations in application.
M.G. Chandrakanth

14. Estimated Cost of Surface Water and Payment for Ecosystem Services (PES) for Water

Abstract
Being a vital, valuable and indispensable resource, water is also the prime ecosystem service of the nature. Irrigation being the largest user of water (92 %) in India, the discipline in water use in agriculture is crucial, resulting in water savings. Water literacy and payment for ecosystem services (PES) are sine –qua non for bringing water use efficiency and in educating consumers regarding the PES for water for system efficiency. How the state can adopt an implementablePES with high accountability and low transaction cost is demonstrated in this chapter. The cost of surface water estimated is proposed to be collected through an effective payment vehicle in order to reduce the transaction cost of collection. The purpose of this chapter is to educate the users of water (largely the consumers), regarding their obligation to pay those who are conserving the ecosystem which in turn contributes to hydrological flows. This study highlights the contribution of farmers of Kodagu who are responsible for maintaining / preserving / conserving the biodiversity in Bramhagiri which is responsible for water flows in Cauvery river. Unless the downstream areas in Karnataka, Tamilnadu which largely are the beneficiaries of Cauvery water appreciate the conservation efforts of Kodagu farmers, by the way of PES, there will be no incentive for upstream farmers towards conservation. The society will then pay a heavy price for such a lapse. It is therefore necessary for creating awareness regarding the benefits enjoyed by water users due to efforts of upstreamers and hence the need for PES. At present in India, surface water cost is administratively determined as water rate in different States. Obviously this is highly subsidized. However even this subsidized water rate is usually not paid by farmers. Hence the PES is suggested.
M.G. Chandrakanth

15. Economics of Artificial Recharge of Borewell in Hard-Rock Areas

Abstract
Water policy in India is yet to recognize the importance of individual borewell recharge. This is especially relevant in hard-rock areas where the recharge is below 5–10 %  on the supply side, while on the demand side, extraction exceeds recharge. Most users of groundwater—be they farmers for irrigation, consumers of drinking water or companies that bottle drinking water—are myopic since they seldom think of the recharge of groundwater. Most of their efforts are towards extraction, overextraction, deepening existing borewells and drilling new borewells, rather than strengthening their existing borewells through on-farm recharge of borewells. Many do not believe that recharging helps the aquifer and tend to be further myopic by the argument that their effort towards recharge may not reach deeper layers of the borewell, and even if their efforts help in recharging, they may be captured by the neighbouring farmers. Hence, there is apathy towards recharge. However, when it comes to groundwater extraction, farmers or users do not mind pumping and overpumping groundwater, irrespective of such considerations.
M.G. Chandrakanth

16. Economics of Sharing Irrigation Water

Abstract
Given the increasing probability of initial and premature well failures, the economic predicament is to choose among drilling new wells, adopting micro-irrigation and using the available water efficiently, sharing the water from existing wells and recharging the borewells. Some of the strategies are singular and some can be used in combination. Due to the breakdown of the joint family system, the institution of sharing has received a raw deal. Nevertheless, there are still farmers who like to share well water with their brothers in order to avoid risky lumpy investment on new irrigation wells. Thus, sharing water among brothers is an informal institution. It is not easy to obtain a list of farmers who share their well water and therefore, the only way to obtain such a sample or list of farmers is through snowball sampling. Comparing farmers who share their well water with those who do not share their well water, farmers who shared their well water for irrigation faced a lower rate of well failure, had a higher proportion of functioning wells, reduced negative externality per well, reduced cost of groundwater and enhanced the life of the well, all leading to higher net returns per rupee of well water.
M.G. Chandrakanth

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